Virgin Australia: Behind the scenes of the Bain Capital takeover

While we know a lot about the process of the administration by Deloitte and the subsequent sale to Bain Capital, we have never quite been able to see the machinations that went into the changing of the guard from Paul Scurrah and his team to ex Jetstar CEO and Bain alumni, Jayne Hrdlicka. The switch was made all the more intriguing because of the multiple public assurances from Bain Capital, that the Scurrah team would stay in place.

Intrigue revealed

The Australian Financial Review (AFR) continues its proud record of corporate investigations by publishing an excellent article which details what appears to this writer as the duplicitous behavior by Bain management regarding the exit of the Scurrah team, overthrown by the Hrdlicka cabal.

For any AvGeek or corporate intrigue follower, this is a wonderfully analytic piece from Anthony MacDonald and Sarah Thompson. The feature is titled: ‘How Bain Capital played ‘Hrd ball’ to secure Virgin‘ actually some sub-editor has just changed the title to: ‘Inside the biggest deal of the year. I’m going to stick with the former title, with the better play on Jayn’s surname.

The AFR is a subscription publication behind a paywall, however in some geographic areas, you may be able to access a number of articles at no cost.

Deception?

The article documents what looks on the surface like some high-level corporate deception, although, nothing actually illegal. When you have committed close to AU$1 billion, with a few more required to purchase an airline, I guess you are prepared to run it your way, even if you need to use some classic ‘bait and switch’ tactics.

‘Sure, Bain was making a huge bet on a grounded air carrier and could appoint whoever it liked to run the airline. But it had used Scurrah to get its preferred deal across the line and repeatedly told Virgin insiders that management’s jobs were safe.’

Anthony MacDonald and Sarah Thompson, How Bain Capital played ‘Hrd ball’ to secure Virgin, AFR, 23 Dec 2020

Bain had even issued a video assuring all and sundry that CEO Paul Scurrah’s team would remain. That all changed when the deal was actually done:

‘After months of denials – both publicly and privately – the night of long knives arrived. After all the discussions, strategy sessions and the like, Bain finally decided it wasn’t going to work out with Scurrah. It had entertained his views and used his support to help get its deed of company arrangement approved, but it wanted to go in a different direction.’

Anthony MacDonald and Sarah Thompson, How Bain Capital played ‘Hrd ball’ to secure Virgin, AFR, 23 Dec 2020

The proof of that ‘different direction’ will be in the pudding – as they say.

. . .its only just begun . . .

We won’t know if the Bain’s acquisition tactics and proclaimed ‘mid-market’ strategy is a longer term winner. As the article says about Bain, and its Australian chief Mike Murphy:

For Bain, the hard work is only just beginning. It has its big Australian deal and Murphy has rocketed into the top tier of Australian private equity executives, but it has just paid $3.5 billion for an airline in a pandemic. And, with Australia’s borders shut to tourists and travel restrictions in place between states, Bain may need to be patient.

Anthony MacDonald and Sarah Thompson, How Bain Capital played ‘Hrd ball’ to secure Virgin, AFR, 23 Dec 2020

Patient indeed, not to mention fending off a new competitor in domestic flying with REX commending capital city operations in March 2021

2PAXfly Takeout

This is another timely reminder to wear your seatbelt when seated. Holding you close to your seat will protect you from the sort of injuries sustained on this flight, when unsecured passengers flew to the ceiling of the aircraft, and then came crashing down once the ‘drop’ ceased.

The hope will be that this is an anomaly – a ‘freak accident’ in casual parlance. If it is a systemic error either mechanical or electronic, then this is a larger concern for the airlines that fly Boeing Dreamliner 787 aircraft. Let’s hope it isn’t. If it is, it will pile on the woes to Boeing’s existing stack.

The survival of Virgin Australia was always going to be an intriguing saga. The pandemic makes it more interesting, and the Bain ‘bait and switch’ move means – sit back and order in the popcorn and pizza’ The show looks like having more than a few twists and will last more than a season.